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Bond purchases could end this year, says Fed’s Lockhart

TradingPub Admin | June 4, 2013

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Some free trading education regarding how the statements of key government officials can impact the financial markets and the sentiment of its participants can be obtained by observing speculation recently provided by Dennis Lockhart, president of the Atlanta Federal Reserve Bank.

On June 3, Lockhart told Fox Business during an interview that the potential "tapering" or reduction of the existing stimulus package is a possibility that has been noted by both Chairman Ben Bernanke and other key officials of the Federal Reserve.

He emphasized that the timing involved in making any reduction to the existing package of bond buying is crucial.

"To translate 'tapering' into 'downward adjustment: I think we are approaching a period in which it could be considered," he told the news source. "That's not to say June meeting, but we are approaching a period in which it can be seriously considered based upon sort of the momentum of the economy - which is not great but is nonetheless is moving forward - and based upon accreting confidence in the economy."

The Federal Reserve currently makes $85 billion worth of asset purchases every month. The objective of such a move is putting more money into people's hands in an effort to invigorate the economy. These efforts have encountered some headwinds, as many Americans have been reluctant to open up the purse strings and spend money.

Another key official at the Fed, John Williams, predicted that quantitative easing could be halted altogether by the end of 2013, and the central bank could start reducing this stimulus within the next three months, according to Bloomberg News.

Williams, who is the president of the San Francisco Federal Reserve, stated that monetary easing "is doing this great job of helping the economy gain momentum, and I would want to see that continue well into the second half of this year, but if things, again if they go well, you could imagine ending the program by the end of the year," the media outlet reports.

Possible stimulus increase
There has been substantial speculation that quantitative easing will be likely be reduced in the near future, but Lockhart noted that the opposite could potentially be true, since the Federal Reserve might step up its economic stimulus, according to Fox Business. The government official noted that such a move would need to be prompted by specific circumstances, for example a robust economic problem "that appears to be threatening recession" or deflation.

"I think we have been trying to position this policy as a flexible policy that could be used in either direction, be calibrated to how the economy is actually performing," Lockhart stated. "I don't think (an increase) can be ruled out."

Economic concerns
One major factor that will impact the future of monetary easing is the general state of the economy, and the Federal Reserve official indicated that the jobs report scheduled for release at the end of the week would draw substantial attention from market participants, the media outlet reports.

Bernanke has specifically noted that the labor market is a key ingredient in the continued used of bond purchases, stating that significant lowering in the jobless rate would be needed to reduce monetary easing.

Lockhart indicated his prediction that the data provided by the U.S. Labor Department will indicate that the nation created between 160,000 and 175,000 net positions in May, according to Reuters. The Federal Reserve official noted that any figure below this will serve as a red flag.

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